Earlier this year, the U.S. Securities and Exchange Commission took action against 27 individuals and organizations for publishing misleading financial news under the “guise of impartiality.”1 (Needless to say, Schwab was not among them.) In many of these instances, public companies had hired individuals to generate positive publicity for their stocks by posting stories on various websites.
While the fines may cut down on the flow of fraudulent financial news, it certainly won’t stop it altogether. If you come across an intriguing investment idea but wonder if it’s too good to be true, consider the following steps:
- Verify the numbers: Look up the company’s fundamentals and valuation to see if it’s performing as well as the post claims.
- Read the fine print: Check to see whether the post is a paid advertisement or if there’s a disclosure noting that the author owns the investment being promoted. “If the post is unusually laudatory and there are no disclosures, that’s a red flag,” says Mark Riepe, senior vice president at the Schwab Center for Financial Research.
- Check the author bio: Does the author have a verifiable background in finance? “Anyone can have an opinion about investing,” says Mark, “but some opinions are more credible than others.”
- Confirm credentials: Broker-dealers like Schwab are members of the Financial Industry Regulatory Authority (FINRA), the single-largest independent regulatory body for securities firms operating in the United States. FINRA members cannot publish information they know to be false or misleading, and all their public-facing content is carefully reviewed for fairness and balance.2 (Online publishers that aren’t FINRA members don’t follow this process before posting financial news or guidance.)
- Get a second opinion: Talk to a financial advisor about any potential investments in the context of your overall goals. “He or she might ease your fears—or confirm your suspicions,” Mark says. “Either way, you’ll be getting input from someone you can trust.”
The bottom line: Identify a few trustworthy sources for your financial information—and when in doubt, do your homework.
1“SEC: Payments for Bullish Articles on Stocks Must Be Disclosed to Investors,” U.S. Securities and Exchange Commission, 04/10/2017.
2According to FINRA rule 2210 (d)(1)(b).
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